Start your historical performance record with our incubator fund strategy and add investors with related legal fees later.
An incubator fund is the least expensive and most flexible hedge-fund business plan around! It’s designed for your own money only, and the documents are simplified accordingly. The friends-and-family incubator fund has similar documents to a for-profit hedge fund, minus the compensation clauses.
GNMTraderTax offers tax compliance and accounting services for a reasonable cost — less than what full-fledged hedge funds pay. We recommend another firm for assurance services for financial statements and/or performance record.
The incubator fund is generally structured as an investment fund vehicle like a Delaware Limited Partnership (LP) or Limited Liability Company (LLC). Your management company is generally formed in your home state, if needed to start. Your attorney should consult with you on various restrictions and a road map on how to proceed, so as not to go beyond the bounds of trading your own money or that of friends and family in the incubator fund. The attorney’s heavy lifting on the fund paperwork including private placement memorandum, LLC operating agreement and subscription materials can wait until friends and family join. Compensation clauses are added when you go to the final phase. Your attorney should consider important licensing, registrations and other plans in Phase I, too.
The benefit of starting an incubator fund is that you can begin generating a historical performance record now and wait on completing the setup of a hedge fund (Phase II) that can be offered to others when the fund has a performance record. This takes considerable start-up risk capital off the table.
Incubator funds can be scaled up to hedge funds or scaled down to a good solution for trading your own funds. Many of our incubator-fund clients engage GNMTraderTax for tax compliance services years before they decide to have audited financial statements.
When it comes to forming a fund, it’s important to speak with a law firm with expertise in investment management. We recommend you speak with Brent Gillett JD of Investment Law Group. (Read Investment Management Services: Development.)
For more information on our incubator fund strategy, read our blog Incubator Funds.
We look forward to working with you soon.
Robert A. Green, CPA & Darren L. Neuschwander, CPA
Managing Members of Green, Neuschwander & Manning, LLC (GNMTraderTax)